Disney RSN Deal Panned

MEDIA: Sinclair’s $10.6B sports network bid deemed low

Walt Disney Co.’s sale of 21 regional sports networks to Sinclair Broadcast Group Inc., announced earlier this month, has drawn formal objections with a sale price less than half of what analysts estimated the channels were worth.

Disney acquired 22 sports properties, including the popular Fox Sports West and Fox Prime Ticket, as part of its recent $71.3 billion purchase of several assets from 21st Century Fox Inc., which changed its name to Fox Corp. after the sale. The Justice Department approved that deal in June — with the caveat that Disney sell off the sports networks.

Disney announced May 3 that it had reached a deal with Sinclair to sell 21 of the 22 regional sports channels for $10.6 billion.

The networks had been valued at $22.4 billion by research firm Guggenheim Securities as recently as 2017.

“I thought it was a mistake,” said Neal Pilson, founder of consulting group Pilson Communications and former president of CBS Sports. “Local sports are a reliable entertainment property.”

Disney’s sale

Some analysts said bidding for the properties wasn’t aggressive enough to drive up the price.

The sale still must get approval from the Justice Department’s antitrust division, which is already fielding two formal complaints over the deal. One was filed last month by downtown-based 3-on-3 basketball league organizer Big3, claiming it was shut out of the bidding process. The other was filed following the sale’s announcement by ACA Connects, a lobbying group that claims the deal could lead to higher cable rates for consumers.

Regional sports networks have been around since cable television’s advent with the simple business model of acquiring rights to televise local sporting events.

Fox Prime Ticket, for example, pays the National Basketball Association’s Los Angeles Clippers about $55 million per year to televise the team’s games. Fox Sports West pays the National Hockey League’s Los Angeles Kings about $22 million a season to air Kings’ games.

The networks make money from the carriage fees they charge cable operators, plus advertising and sponsorship deals.

The networks are widely regarded as consistently profitable, and a Sinclair investor presentation claimed that channels would net $1.9 billion in 2019 earnings before interest, taxes, depreciation and amortization.

The sports channel sale has been on the horizon since June when the Justice Department approved Disney’s purchase of Fox assets but required the networks be divested. Justice Department lawyers said in a federal complaint the combination of Disney’s ownership of ESPN with Fox’s regional sports networks — which have the rights to telecast 48% of U.S. professional sports teams’ games in the NBA, NHL and Major League Baseball — would “likely result in higher prices for cable sports programing.”